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Address by Minister Fast at the Peterson Institute for International Economics

Address by Minister Fast at the Peterson Institute for International Economics

March 14, 2013 - Washington, D.C.

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As Canada’s Minister of International Trade, my work takes me to many different places. Of course I love meeting with fellow free traders all over the world, but by far my most frequent visits are to your country, and more specifically to D.C., where I come most often.

I am disappointed that my former counterpart, Ron Kirk, will no longer be providing trade leadership for the United States. Ron and I had a very open, honest and eminently productive relationship, and together we were able to help move the Canada-U.S. relationship forward. I certainly wish him well as he enters the next season of his life.

You know, there is so much our two countries share.

The Canada-U.S. relationship is a model for the rest of the world. It is founded on our common values of freedom, democracy, human rights and the rule of law. And we share a deep commitment to free markets and more open trade. No two other nations have ties as close as ours.

Quoting one of your former presidents: “Geography has made us neighbours; history has made us friends; economics has made us partners....”

That was, of course, President [John F.] Kennedy, during an address to our parliament in 1961. His words are as true today as they were over a half-century ago. Canada and the United States are still each other’s best neighbour, friend and customer.

Speaking of customers, there is indeed no stronger or more trusted trade relationship between any two nations on this earth.

As you know, this past January 2 marked the 25th anniversary of the signing of the Canada-U.S. Free Trade Agreement [FTA]. The Agreement positioned our two countries as the vanguard of trade liberalization. It stood as a shining example to the world of just what can be achieved when barriers to trade are reduced and eliminated.

But as any good student of North American economic history can tell you, the Canada-U.S. FTA was only the beginning.

Its successor, NAFTA, which also brought Mexico into the fold, was destined to become the single most successful economic arrangement the world has ever known.

Canada and the United States now share the largest bilateral flow of goods, services, people and capital between any two countries in the world.

In 2012, our two-way trade in goods and services exceeded [US]$742 billion. That’s nearly [US]$2 billion a day, or almost [US]$1.4 million every single minute.

And these numbers aren’t simply sterile statistics. They represent jobs, very real jobs—some 2.4 million of them in Canada and 8 million in the United States.

But the face of international trade has changed over the last 25 years.

You may recall that NAFTA was a first-generation free trade agreement, one that primarily focused on tariff elimination.

Today, traders must grapple with many non-tariff barriers, such as duplicate reporting requirements, misaligned standards and regulatory impediments, special licences, bureaucratic customs delays at the border, the need to apply for trusted trader and traveller programs twice (that’s once in each country), and the list goes on.

And areas such as the services trade, environmental goods, government procurement and the digital economy face restrictions that first-generation trade agreements never accounted for.

That’s why more recently, Prime Minister Stephen Harper and President Barack Obama committed to re-energizing the Canada-U.S. partnership by implementing two complementary initiatives: the Beyond the Border Action Plan and the Regulatory Cooperation Council [RCC].

So far, real progress has been made to speed up legitimate trade and travel, improve and move security to the perimeter of our two countries, align regulatory approaches where appropriate and make it easier for companies in both of our countries to do business with each other.

Taken together, these two agreements represent the most significant boost to North American competitiveness and cooperation since NAFTA.

They account for the new reality of international trade, a reality where tariffs are no longer the biggest obstacles to the free movement of goods and services.

In addressing many of these so-called non-tariff barriers, the Beyond the Border Action Plan and the Regulatory Cooperation Council truly represent the next generation of thinking about international trade.

In that way, they are yet another example of Canada and the United States together leading by example on the world stage.

But, to be fair, we still have a long way to go in bringing these two initiatives to a satisfactory conclusion, and we look forward to working with you and the Obama administration to ensure that the current momentum is not lost. I would really covet your support in that effort.

The Border Vision [Beyond the Border: A Shared Vision for Perimeter Security and Economic Competitiveness] and the RCC pieces are initiatives that we can also leverage as our respective countries work shoulder to shoulder to negotiate a Trans-Pacific Partnership.

Of course, the Peterson Institute has recently released a pair of studies on the TPP, looking at its potential value and impact in the context of other regional initiatives. These studies provide valuable insight and, I am told, have been of great interest to our negotiators at the table.

As one of these studies notes, the TPP is clearly a significant trade deal in the making and could, if done properly, lead to even bigger deals over time. The TPP not only serves as a “central pathway” for economic integration in the Asia-Pacific region, it is designed to be expanded to include others. Indeed, it is hoped that the TPP will act as a catalyst to re-invigorate the moribund Doha Round of the WTO.

Once complete, the partnership will not only strengthen Canada’s efforts to broaden and deepen its trading relationships with Asia-Pacific markets, it will also reaffirm and invigorate our traditional partnerships in the Americas—including that with the United States. We are very pleased to be working shoulder to shoulder with you in forging new economic links with some of the fastest-growing and most dynamic markets in the world.

The high level of integration of the Canadian and American markets and our common North American production platform demand a shared approach to preserving and building upon our North American supply chains.

Our automotive industry is a great example of Canada-U.S. supply chains in action. Canadian and American vehicles are built to service North American markets, using common safety and environmental standards. One automotive part in a Canadian-built vehicle will often cross the border as many as six times before the assembled car finally hits the road.

In the TPP, it will be our task as governments to promote the jobs and economic prosperity that are sustained by this vibrant and effective economic partnership.

But I would also like to point out that, in today’s modern economy, it’s more than just about the movement of goods. Facilitating the movement of business people is just as important as ensuring the free movement of goods, capital, services and investment.

Major U.S. companies such as Microsoft, Warner Brothers, IBM and Cisco have vocally and repeatedly told me that their businesses suffer when they can’t get the people they need across the border.

In our integrated Canada-U.S. economy, facilitating the temporary movement of business people between work locations supports the success of our businesses and spurs job creation.

The TPP negotiations offer a chance for Canada and the United States to optimize the rules for the easy movement of professionals across our border.

Truly, this is a once-in-a-generation opportunity for our two countries to work together with our other partners to craft a gold-standard 21st century trade agreement.

Of course, everyone approaches negotiations with a view to protecting and promoting their interests, and Canada is no exception. But for Canada and the United States, as history has borne out, what is good for one is usually good for the other.

Which is why I feel compelled to say a word or two now about “buy local” policies like Buy America.

As you are no doubt aware, Buy America has been a persistent irritant for Canadian industry. We oppose any restriction that is counterproductive to our shared goal of restoring economic growth in North America.

Modern economies need the flexibility to be able to adapt to rapidly advancing technology. Buy local policies—such as the Buy America restrictions included in the infrastructure bills recently introduced in Congress—inhibit this ability to adapt to changing times.

Just a few moments ago, I spoke of our highly integrated supply chains. In fact, our economies are so integrated that every dollar of Canadian export to the United States contains $.25 worth of American content. Compare that to China, where their [$1] export to the U.S. contains only four cents of American content.

I raise the highly integrated nature of our two economies only to highlight that determining what is “American” or “Canadian” is becoming increasingly difficult and arbitrary.

For these reasons, many American industries and trade organizations—from suppliers to government purchasers—have spoken out against the application of Buy America policies to Canada.

What’s more, the very idea that such policies save domestic jobs is theoretically flawed. As you know, it is not a given that simply increasing imports automatically reduces the overall number of jobs in a country.

As history has shown, unemployment can change substantially over the course of business cycles. On average, however, the number of jobs will be roughly a constant proportion of the size of the working population. That is, provided the playing field is level, job numbers should not be affected by a nation’s openness to imports. This is especially so when those imports become critical intermediate inputs in the manufacture of products for export.

For those of you not familiar with it, I would recommend to you some excellent work done by the WTO and the OECD in recalibrating how we look at and evaluate imports and exports. By parsing out intermediate inputs, including services, they have provided us with a much better understanding of the role that imports play in driving wealth creation in our respective economies.

In short, the old mercantilist math of “exports good, imports bad” is anachronistic. Indeed, our goal should be larger terms of trade.

Instead of more buy-local policies, what we need are stronger rules on government procurement to ensure a level playing field, drive efficiency and competitiveness, and help protect the economic gains made by trade liberalization. Within the TPP, that might mean:

rules that further encourage the integration of supply chains across the TPP region;

rules that enhance governments’ abilities to obtain best value for taxpayer money in their purchasing; and

rules that provide secure access to opportunities created by the rapid development of public infrastructure throughout the Asia-Pacific region, which is estimated for the Southeast Asian economies alone to be about US$60 billion a year.

We believe that an ambitious 21st century TPP agreement can and should include such rules within a robust government procurement chapter.

Through the TPP negotiations, therefore, we will continue working with the United States to strengthen overall North American competitiveness, creating jobs, growth and long-term prosperity for both of our countries.

Moving now to another one of our mutual strengths—indeed, one of the cornerstones of the Canada-U.S. economic partnership—and that is, of course, energy.

Our two countries share the largest and most significant energy relationship in the world, reflecting our mutual commitment to energy security, economic prosperity and environmental responsibility.

Canada is the largest oil supplier to the United States. In 2011, we delivered 2.8 million barrels a day of crude oil and refined products—more than Saudi Arabia and Venezuela combined.

Nonetheless, we are on the brink of a fundamentally altered global supply-demand paradigm.

To paraphrase another of your presidents, in his most recent State of the Union address, President Obama noted that the United States is buying less foreign oil than it has in 20 years and producing more domestically than it has in 15 years.

Game-changing, to be sure; but the truth of the matter, at least in the short to medium term, is that the U.S. will continue to be reliant upon imported oil. In fact, the U.S. Energy Information Agency’s Annual Energy Outlook 2013 foresees the United States still importing 37 percent of its net oil requirements in 2040.

Until renewable energy technologies are perfected, widely available and economically viable, the world will continue to rely on fossil fuels for the majority of its energy needs.

And that’s why Canada is working in lock-step with the United States on controlling greenhouse gas [GHG] emissions.

Unlike most countries supplying the U.S. market (including the two that I just mentioned), Canada has committed to an emissions reduction target under the Copenhagen Accord that is aligned with the American target: 17 percent below 2005 levels by 2020. And we are already half way there.

In the transportation sector, we are regulating GHG emissions from heavy- and light-duty vehicles that align with U.S. standards.

And in the coal-fired electricity sector, we have just this past September released regulations to reduce emissions. This will make Canada the first country in the world to ban new coal plants that use traditional technology.

Friends, there is no doubt that, as America unlocks its own vast new supplies of domestic oil and gas, its reliance on imported oil will decrease.

But in the meantime, the strategic value of Canada as a reliable, friendly and environmentally responsible source of oil and gas to the United States cannot be understated—particularly in light of continuing instability in the Middle East and North Africa.

Therefore, we strongly support the construction of the Keystone XL pipeline, which will create jobs, economic growth and benefit the long-term prosperity and energy security of both Canada and the United States.

Ladies and gentlemen, just as we were 25 years ago, Canada and the United States once again stand together on the edge of economic history.

Through Beyond the Border, the RCC and the TPP, we are helping to write a new 21st century trade rulebook.

Through our shared commitment to energy security and environmental responsibility, we can and should show the world that its two most trusted and forward-looking trade partners continue to lead on economic growth and climate change.

By reinforcing and building our strategic partnership, we are ensuring the prosperity and security of Canadians and Americans alike for generations to come.